The FDIC announced last week that it had entered into settlements with Bank of Lake Mills and two non-bank “institution-affiliated parties” through which the bank originated loans for allegedly engaging in unfair and deceptive practices in violation of Section 5 of the FTC Act. The settlements should serve as a reminder to non-banks entering into arrangements with FDIC-supervised banks that they can become subject to FDIC enforcement authority.
The FDIC did not release the underlying stipulations and consent order and only released the orders requiring payment of restitution and civil money penalties. The orders require the bank and two non-banks, Freedom Stores, Inc. (FSI) and Military Credit Services, LLC (MCS), to pay approximately $3 million in restitution to eligible borrowers and civil money penalties of, respectively, $151,000, $54,000, and $37,000.
The orders describe eligible borrowers as having received loans from the bank through “FSI and MCS channels.” It would appear that, because the non-banks originated loans on behalf of the bank, the FDIC deemed the non-banks to be “institution-affiliated parties” under 12 U.S.C. section 1813(u)(1) which defines an “institution-affiliated party” to include any ” agent for an insured depository institution.”
According to the FDIC’s press release, the bank, FSI, and MCS violated Section 5 by practices that included:
- Charging interest to borrowers who paid off their loans within six months when the loans were promoted as interest free for six months;
- Selling add-on products without clearly disclosing the terms of those products; and
- Failing to provide borrowers the opportunity to exercise the monthly premium payment option in conjunction with the purchase of optional debt cancellation coverage
In December 2014, FSI and MCS entered into a consent order with the CFPB to settle allegations that the companies had engaged in unlawful debt collection practices in violation of the CFPA UDAAP prohibition.